Monday, September 13, 2010

If you're like most of us, the choice pretty much boils down to BDO vs. BPI, mainly because most of us already have accounts, and "relationships," with either or both of those banks. The only reason some of us have Metrobank accounts is that it's our employers' choice for payroll accounts; if it were just up to us, we would rather open accounts in the two other banks, mainly because of convenience. Both banks are best in terms of convenience: as far as I know, BPI has the most number of ATMs, at least in the metro, and BDO can be found in virtually all SM malls and have longer business hours, to boot.

Taking another look at the side-to-sides of the UITFs of BDO and BPI, we see that BDO has an edge in several criteria, like minimum required investment (except for the money market UITF), minimum holding period, and the management or trust fee. The first two criteria may not really matter much to you, like if you have more than the required minimum and you don't really need to redeem your shares soon. The difference in fees may or may not matter: for the money market fund, BDO is lower by 0.25% per year, and for the balanced and equity funds, the difference is 0.50% per year.

So if you're choosing between BDO and BPI, which bank's UITF would you invest in? Why don't we take a look at the actual performance of the funds to see which bank has the better mojo.

Money Market

Past 12 months' return

Peso return on a 100,000 peso investment

BDO

3.41%

3,410

BPI

2.84%

2,840

Difference

0.57%

570

In the last 12 months, the BDO money market fund has outperformed the comparable UITF of BPI by 0.57%, or 570 pesos on a 100,000-peso investment. The difference may not seem much, but remember this fund is the least volatile of the lot, and therefore provides the least returns. A 0.57% difference is actually 17% in relative terms, so that may be big enough to some people.

Bond/Fixed Income

Past 12 months' return

Peso return on a 100,000 peso investment

BDO

10.20%

10,200

BPI

5.34%

5,340

Difference

4.86%

4,860

Here's where things really start to unravel for BPI. How can it explain an almost 50% difference in return?

Let's skip the balanced fund, shall we? And head on straight to the equity funds of the two banks.

Equity

Past 12 months' return

Peso return on a 100,000 peso investment

BDO

40.96%

40,960

BPI

32.63%

32,630

Difference

8.33%

8,330

Okay, before you arrive at any premature conclusion, let me first emphasize that the ginormous returns you see here are mostly due to the overall performance of the market, in general, as you see with the orange curve for the PSEi in the graph. The key in evaluating the funds is to look at performance in relative terms and not on absolute returns--always.

Here we see, again, a BDO UITF outperforming a comparable BPI fund by a significant margin. Perhaps it's also relevant to point out that the BDO equity fund also managed to outperform the PSEi over the course of the past year, even after taking into account all relevant taxes and fees (remember that quoted NAVPUs are net of everything); unfortunately, the same cannot be said about BPI.

What does this all mean? Clearly, it's not just about the difference in fees, although that also plays a role, albeit a small one, in this... massacre? The only reason I can think of is that BDOs fund managers are "better" than their BPI counterparts. What do you think?

This one time, I'm not going to dilly-dally and make a half-assed recommendation like I always do: if I am going to invest in a UITF or similar instrument in the Philippines, I am going to invest in one of BDOs UITFs. This has actually been clear to me even when I wrote that original post months ago: in almost all aspects, BDO simply kicks the asses of the other guys. The choice of fund--money market, bond/fixed-income, balanced, equity--is all up to you, on how you handle risk and your other financial circumstances. I just had to show some specifics and some more numbers to make the choice even clearer.

But in the end, remember that small caveat that I mention over and over again: past performance is not indicative of future results. A 40% return this year does not guarantee a similar return next year. Nevertheless, I'm still convinced that BDO, on top of other things that make it the better alternative, will continue to deliver better returns than BPI in the UITF arena. I'm so convinced, in fact, that I'm willing to put my money where my mouth is.

Full disclosure: I am not in any way related to BDO or its affiliates. I actually abhor SM. But that's neither here nor there.